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Endogenous product differentiation in credit markets: What do borrowers pay for? [An article from: Journal of Banking and Finance]
Book Details
Author(s)M. Kim, E.G. Kristiansen, B. Vale
PublisherElsevier
ISBN / ASINB000RR2UV8
ISBN-13978B000RR2UV6
AvailabilityAvailable for download now
Sales Rank99,999,999
MarketplaceUnited States 🇺🇸
Description
This digital document is a journal article from Journal of Banking and Finance, published by Elsevier in 2005. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.
Description:
This paper studies strategies pursued by banks in order to differentiate their services and soften competition. More specifically we analyze whether bank's ability to avoid losses, its capital ratio, or bank size can be used as strategic variables to make banks different and increase the interest rates banks can charge their borrowers in equilibrium. Using a panel of data covering Norwegian banks between 1993 and 1998 we find empirical support that the ability to avoid losses, measured by the ratio of loss provisions, may act as such a strategic variable. A likely interpretation is that borrowers use high-quality low-loss banks to signal their creditworthiness to other stakeholders. This supports the hypothesis that high-quality banks serve as certifiers for their borrowers. Furthermore, this suggests that not only lenders and supervisors but also borrowers may discipline banks to avoid losses.
Description:
This paper studies strategies pursued by banks in order to differentiate their services and soften competition. More specifically we analyze whether bank's ability to avoid losses, its capital ratio, or bank size can be used as strategic variables to make banks different and increase the interest rates banks can charge their borrowers in equilibrium. Using a panel of data covering Norwegian banks between 1993 and 1998 we find empirical support that the ability to avoid losses, measured by the ratio of loss provisions, may act as such a strategic variable. A likely interpretation is that borrowers use high-quality low-loss banks to signal their creditworthiness to other stakeholders. This supports the hypothesis that high-quality banks serve as certifiers for their borrowers. Furthermore, this suggests that not only lenders and supervisors but also borrowers may discipline banks to avoid losses.
